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Financial Statement Analysis Cases Financial Statement Analysis Case 1: Vertical Analyses of Johnson&Johnson and Pfizer Inc....

Question:

Financial Statement Analysis Cases Financial Statement Analysis Case 1: Vertical Analyses of Johnson&Johnson and Pfizer Inc. Pfizer Inc. is a US company that manufactures and distributes pharmaceutical and consumer healthcare products that are similar to those sold by Johnson & Johnson. Use the excerpts of Johnson &Johnsons and Pfizers income statements to answer the following questions: a. Compute each line item as a percentage of sales for both companies. b. If sales are used as a measure of size, which company is larger? c. Which company has a higher cost of goods sold relative to sales? d. Which company has higher selling, general, and administrative expenses relative to sales? e. Which company has higher research and development expenses relative to sales? f. Which company has a higher income from continuing operations relative to sales? Comment on the difference or lack of difference given other relationships observed. g. Which company has a higher profit margin? Comment on the difference between the two companies. Johnson & Johnson Pfizer 2016 $71,890 21,685 50,205 19,945 9,095 2016 $52,824 12,329 40.495 14,837 7872 (amounts in millions* Net Sales Cost of Goods Sold Gross Profit Selling, General, and Administrative Expenses Research and Development Expenses In-Process Research and Development Amortization of Intangible Assets Restructuring Charges, Net Interest Expense Interest Income Other Expense (income), Net Income from Continuing Operations Before Income Taxes Income Tax Expense Income from Continuing Operations Income from Discontinued Operations, Net of Income Taxes Net Income Before Noncontrolling Interests Income Attributable to Noncontrolling Interests Net Income 29 0 4,056 1.724 491 726 (368) 484 9,803 3,263 $16,540 3,655 8,351 1,123 7,229 17 S 7,246 $16,540 S 16,540 S 7215 The captions for some lines have been changed for consistency in comparing the two companies Sources: Johnson & Johnson and Pfizer income statements
Financial Statement Analysis Cases Financial Statement Analysis Case 1: Vertical Analyses of Johnson&Johnson and Pfizer Inc. Pfizer Inc. is a US company that manufactures and distributes pharmaceutical and consumer healthcare products that are similar to those sold by Johnson & Johnson. Use the excerpts of Johnson &Johnson's and Pfizer's income statements to answer the following questions: a. Compute each line item as a percentage of sales for both companies. b. If sales are used as a measure of size, which company is larger? c. Which company has a higher cost of goods sold relative to sales? d. Which company has higher selling, general, and administrative expenses relative to sales? e. Which company has higher research and development expenses relative to sales? f. Which company has a higher income from continuing operations relative to sales? Comment on the difference or lack of difference given other relationships observed. g. Which company has a higher profit margin? Comment on the difference between the two companies. Johnson & Johnson Pfizer 2016 $71,890 21,685 50,205 19,945 9,095 2016 $52,824 12,329 40.495 14,837 7872 (amounts in millions* Net Sales Cost of Goods Sold Gross Profit Selling, General, and Administrative Expenses Research and Development Expenses In-Process Research and Development Amortization of Intangible Assets Restructuring Charges, Net Interest Expense Interest Income Other Expense (income), Net Income from Continuing Operations Before Income Taxes Income Tax Expense Income from Continuing Operations Income from Discontinued Operations, Net of Income Taxes Net Income Before Noncontrolling Interests Income Attributable to Noncontrolling Interests Net Income 29 0 4,056 1.724 491 726 (368) 484 9,803 3,263 $16,540 3,655 8,351 1,123 7,229 17 S 7,246 $16,540 S 16,540 S 7215 The captions for some lines have been changed for consistency in comparing the two companies Sources: Johnson & Johnson and Pfizer income statements

Answers

Particulars

Johnson & Johnson

2016

Pfizer

2016

Amount (in million) Percentage Amount (in million) Percentage
Net Sales 71,890 100% 52,824 100%
Cost of Goods Sold (21,685) (30.16%) (12,329) (23.34%)
Gross Profit 50,205 69.84% 40,495 76.66%
Selling, General &Administrative Expenses (19,945) (27.74%) (14,837) (28.09%)
Research & Development Expenses (9,095) (12.48%) (7,872) (14.90%)
In- Process Research & Development (29) (0.04%) 0 0%
Amortization of Intangible Assets --- -- (4,056) (7.68%)
Restructuring Charges, Net (491) (0.68%) (1,724) (3.26%)
Interest Expenses (726) (1%) ----------- -----
Interest Income 368 0.51% ----------- ----
Other Expenses (income), Net (484) (0.67%) (3,655) (6.92%)
Income from Continuing Operations before Income Taxes 19,803 27.55% 8,351 15.81%
Income tax expense (3,263) (4.54%) (1,123) (2.13%)
Income from Continuing Operations 16,540 23% 7,229 13.69%
Income from Discontinuing Operations,Net of Income Tax ----- ---- 17 0.03%
Net Income before Non controlling Interests 16,540 23% 7,246 13.72%

Income attributable to Non controlling Interests

------ ----- (31) (0.06%)
Net Income $ 16,540 23% $ 7,215 13.66%

b. Sales of Johnson and Johnson is $71,890 & Pfizer sales is $52,824, So the sale of Johnson and Johnson is more than Pfizer. According to sales are used as a measure of size, Johnson and Johnson is larger than Pfizer Inc.

c. Johnson and Johnson has 30.16% and Pfizer Inc. has 23.34% Cost of Goods Sold relative to sales, So that Johnson and Johnson has higher Cost of Goods Sold relative to Sales.

d.

Johnson and Johnson has 27.74% and Pfizer Inc. has 28.09% Selling, General and Administrative Expenses relative to Sales, So that Pfizer Inc. has higher Selling , General and Administrative Expenses relative to Sales .

e. Johnson and Johnson has 12.48% and Pfizer Inc. has 14.90% Research and Development Expenses relative to sales, So that Pfizer Inc.

Has higher Research and Development Expenses relative to sales than Johnson and Johnson.

f. Johnson and Johnson has 23% and Pfizer Inc. has 13.69% of Income from Continuing Operations relative to Sales, So that Johnson and Johnson has higher Income from Continuing Operations relative to Sales than Pfizer Inc. There are 9.31% (23%-13.69%) difference between both Income it is because Research and development expenses and selling General and administrative expenses are respectively 2.42%(14.90%-12.48%) and 0.35% (28.09%-27.74%) higher than Johnson and Johnson company. Because of increase in expenses Pfizer Inc.

Has less Percentage of Income from Continuing Operations.

g. Johnson and Johnson has 69.84% and Pfizer Inc. has 76.66% Gross Profit . Which means Pfizer Inc. has higher profit margin between Sales and Cost of Goods Sold.

This is because Johnson and Johnson has 30.16% and Pfizer Inc. has 23.34% Cost of Goods Sold relative to sales. So Johnson and Johnson has higher Cost of Goods Sold relative to sales than Pfizer Inc.

Calculations for Percentage:-

Cost of Goods Sold %age=(cost of Goods Sold/Sales)×100

Like above formula we calculate other Percentages.

.

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